Michael J. Rosen

Michael J. Rosen is President of ML Innovations, Inc., a fundraising and marketing consulting firm serving nonprofit organizations and the companies that assist them. An AFP Certified Master Trainer and winner of the prestigious AFP/Skystone Prize for Research, Michael is the author of the bestselling book "Donor-Centered Planned Gift Marketing."

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Do Not Make this Big Error with Your Next Challenge Grant

I’ve seen it frequently. Fundraising professionals often make a big error when using a challenge grant. And they compound that error unethically by misleading prospective donors. It’s a common issue that is costing the nonprofit sector a fortune.

What’s the huge mistake? Fabrication of a bogus challenge grant.

True challenge grants are great. When a fundraising professional inspires a donor to provide a challenge grant, the nonprofit has a powerful tool to encourage greater contributions when making an appeal.

Typically, a challenge grant will match new and increased support to a charity. Oftentimes, the match will be dollar-for-dollar, though other multiples can also be arranged. In the case of a dollar-for-dollar challenge, if a new donor gives $100, the challenge-grant donor will give the charity $100. If a $50 donor from last year gives $75 this year, the challenge-grant donor will give $25. Typical challenge grants are not unlimited; the donor will set a maximum total amount.

Using a challenge grant can be an excellent fundraising tool for four reasons:

1. It encourages donor support by increasing the value of donations. For example, with a one-to-one match, new donors have their contributions effectively doubled, thereby significantly magnifying the impact donors can have.

2.It encourages donor support because donors do not want the organization to lose money. If a donor makes a new or increased gift, the charity will receive additional money from the challenge-grant donor. However, the converse is also potentially true.

If a donor does not give, the charity could lose out on some of the challenge grant. Therefore, while a challenge grant can increase the value of a donor’s gift, it can also create the impression of a cost to the organization if the donor does not give. Some donors are motivated by the concern, “If I don’t give my $125, the organization could miss out on another $125 from the challenge-grant donor. I don’t want to cost the organization $125.”

3. It creates a sense of urgency to give now. Typically, challenge grants must be fulfilled within a narrow time-frame. So, prospective donors are encouraged to act now rather than delay their philanthropic decision. The sooner someone gives in response to an appeal, the more likely they are to give. People who set an appeal aside thinking they’ll get to it later, often do not.

The urgency created by a challenge grant is also useful for planned giving campaigns encouraging donors to include the charity in their Will (Charitable Bequest). People do not like to think about end-of-life planning, so it’s easy for them to keep delaying until it’s too late. A challenge grant creates a sense of urgency that can overcome what social scientists call personal mortality salience.

4. It can increase major-donor support. Just as a challenge grant can inspire others to give and to give more, that potential of increased support from others can encourage an individual, foundation, or corporation to provide a challenge grant. If you want a major donor to give more, or if you have a prospective major donor who could give but is not, you might find that they have an interest in providing a challenge grant rather than simply making an outright gift.

In other words, while challenge grants can inspire greater grassroots giving, the potential of greater grassroots giving can inspire a major donor to make a challenge-grant commitment.

So, what’s the problem?

Here is where many nonprofit organizations stumble. Instead of seeking new or increased major-donor support to create a challenge grant, many fundraisers will simply go to an existing donor. Fundraisers will say something like: “Bob, you gave us $25,000 last year, and you’ve said you plan on doing so again this year. Can we call your donation a “challenge grant” to encourage others to give?” Then, Bob gives his permission to convert his outright gift into a challenge. Even worse, some fundraisers will go to a donor who has already made a large unrestricted gift to ask if it can be labeled as a challenge grant although the organization already has the money in the bank.

In either of those cases, the organization will benefit from the challenge grant as it inspires greater grassroots giving. However, the nonprofit has lost out on the opportunity to find new or increased major-donor support.

Furthermore, once a challenge grant is fabricated out of support the organization will receive anyway or has already received, the fundraiser thinks nothing of misleading prospective donors about the challenge. Prospects are told, “If you make a new or increased gift by the end of June, your donation will be matched.” Well, that’s not true if the money has already been collected or if the challenge-grant donor is committed to giving the gift no matter what. That’s lying. It’s unethical.

By committing the lazy error of fabricating a bogus challenge grant, a charity loses the opportunity to find new major-donor support or the chance to increase the support of a donor with major-gift capacity. Furthermore, the charity puts itself into a corner where the only way out is to mislead recipients of the appeal about the true nature of the challenge.

The fix is simple. By leveraging the potential of greater grassroots support, you can inspire a new or increased major-donor gift that can be structured as a true challenge grant. Then, you’ll never have to lie to your prospects about the actual circumstances of the challenge.

If you’d like further insights about challenge grants, including some helpful research data, visit The Agitator blog and search for “challenge grant.”

If you’d like to explore how I can help you develop a creative, effective challenge-grant campaign for current or planned-gift support, feel free to contact me.

Now, it’s your turn. Have you had success using a challenge grant? Have you used a creative challenge grant? Share your insight and story below.

4 Comments to “Do Not Make this Big Error with Your Next Challenge Grant”

I agree about the benefits and the challenges. My favorite story is with a client and a capital campaign I was managing. We had applied to a regional foundation for an outright gift. The program officer came on the site visit, which went well and was organized with one of the board members, etc. At the end of the visit, she said she would be recommending a gift – that was half of what we had asked. I had done my homework, and said while we appreciated the support, we really needed the larger amount since this would be one of our lead gifts, and asked if we could make this be a challenge. She was intrigued, and asked for more info. I proposed the full amount we had requested (a six-figure gift) as a challenge, to be met by new or increased gifts from individuals in the next six months. She went back to the office, and said her boss loved the idea, and we got the commitment. It inspired enough giving that we met the criterion within three months:-).

Colleen, thanks for sharing your wonderful success story. Brava! By understanding the donor, you were able to structure a gift that was meaningful for them and fantastic for the organization. I love a good win-win story.

Thank you Michael for this piece and the drill down. I have been talking with a major donor about how to leverage his donation. He is uncomfortable with what he calls a “pseudo-challenge.” I now have some other ideas of what to present to him.

I’m glad my post resonated with you. Here’s a valid way to present prospects with a different kind of challenge. A major donor can underwrite the cost of a fundraising project. For example, an organization wants to send a direct mail appeal. The cost will be $20,000. The major donor provides a gift of $20,000 to cover the cost of the direct mail. In that case, prospects can be told that thanks to the major donor, the costs of the mail have been underwritten which means 100 percent of the donation each recipient makes will go toward mission fulfillment. With the right verbage, the appeal can still encourage new and increased gifts. This works particularly well with corporate donors.